Section 8 Company Compliances

Section 8 Company Compliances

Under the Companies Act of 2013, a Section 8 business in India is a non-profit organization that advances social welfare. Like other businesses, Section 8 corporations must comply with certain regulations.  The firm that registers under this section will have access to all limited company rights and liabilities. 

Its goals include advancing business, the arts, sciences, athletics, education, research, social welfare, religion, charitable giving, and environmental preservation, among other things. We have outlined the necessary compliances that apply to a Section 8 company in this article:

Event-Based Compliances for Companies Under Section 8

A Section 8 corporation is required to disclose event-based compliances in the wake of particular incidents. These are non-periodic and are prompted by specific occurrences, unlike annual compliances. For Section 8 companies, the following is a checklist of important event-based compliances:

1. Transfer of shares: Any ownership transfer of shares must be reported.
2. Share Distribution: Adherence to regulations concerning the allocation or dispersal of shares. 
3. Appointment or resignation of directors: Notifying the public about the appointment or resignation of directors.
4. Appointment and Resignation of Auditors: Announcements on the appointment and resignation of auditors.
5. Name Changes: The compliance processes that come with a name change for the company.
6. Modifications to the Memorandum of Understanding (MOU) of the Company: Any changes to the MOU must be disclosed.
7. Key Management Staff hiring: Notifying others about the hiring of key management staff.
8. Acceptance of Share Application Fund: Requirements in relation to funding share applications that must be followed.
9. Notifying the public of any major reorganizations or modifications to the company's organizational structure.
10. Disclosure of Interest by Director: Mandatory Compliance List for Section 8 Company (Section 184(1) )

Each director will report to the board at its first meeting after joining as a director, and at each subsequent meeting, they will report on any changes to their financial interests.

SECTION 164(2): DISQUALIFICATIONS FOR DIRECTOR APPOINTMENT:

Each fiscal year, each director of the company will submit a non-disqualification form.

DIRECTORS' KYC (RULE 12A):

This form must be submitted by all of the company's directors by September 30th of each year, at the latest.

Form Annual (AOC-4)

Within 30 days of the Annual General Meeting, the company must file this document containing the Balance Sheet, Statement of Profit and Loss Account, Cash Flow Statement, Directors' Report, and Auditors' Report.

ANNUAL RETURN (MGT-7):

Within sixty days following the annual general meeting, each company will file its annual return.

MEETINGS OF THE BOARD:

Section 8 companies must hold at least one meeting every six months in light of the exemption notification read with section 173(1).(Only two meetings during the fiscal year)

NOTICE OF AGM:

Section 8 According to section 101 (1) of the Companies Act, a company may call a meeting with as little as 14 days' notice as opposed to the usual 21 days.

NO OF DIRECTORS:

There is no prescription regarding the minimum or maximum number of directors in a section 8 company because the Companies Act of 2013's section 149(1) does not apply to section 8 companies. Specifically, section 149(1) specifies that a public limited company must have a minimum of three directors, a private limited company must have two directors, and a section 8 company may have up to fifteen directors.

Section 8 Company Tax Compliances

The Income Tax Act contains tax provisions that apply to Section 8 corporations. They can, however, take advantage of certain income tax exemptions by adhering to specified guidelines. In order to be eligible for these exemptions, Section 8 companies need to meet the following criteria:

1. Register with the Principal Commissioner: In accordance with Section 12A of the Income Tax Act, Section 8 firms must register using Form 10A. The purpose of this is tax exemptions.
2. Observe the conditions in Section 11: Section 8 companies need to fulfill the requirements in Section 11 in order to be eligible for tax breaks. Typically, these requirements entail allocating funds to religious, charitable, or educational endeavors.
3. For Section 80G, submit Form 10B. Approval: Form 10B must be submitted for approval if the business wishes to claim tax benefits (under Section 80G) for gifts it receives.

Which forms must be submitted in order to receive an annual compliance?

1. AOC-4: Within 30 days following the Annual General Meeting, a Section 8 firm must submit a photocopy of the financial statements that were approved.
2. MGT-7: Within sixty days after the date of the annual general meeting, Section 8 firms are required to file their annual returns.
3. Form ITR-6 is a form used to file income tax returns.

Penalties for Failure to Comply

If there is any non-compliance with the procedures, the Ministry of Corporate Affairs has the authority to issue penalties. The following penalties are to be assessed:

In the unlikely event that the Central Government discovers that the Organization is operating improperly or in a way that violates its objectives, it may revoke the permit granted to the Organization; The chiefs and every other official of the Organization who is in default will face a term of imprisonment and a fine that could be increased to Rs. 25 lakhs, or both; If it is found that the Organization's issues were directed falsely, every official in default will be subject to activity under area 447; The Organization will be guilty of a fine that is not to exceed Rs. 10 lakhs and can be increased to Rs. 1 crore.

Non-profit or non-governmental organizations that use their profits to further the arts, business, welfare, research, etc. are classified as Section 8 businesses. A section 8 corporation can benefit from a number of advantages and avoid the harsh penalties associated with non-compliance if it complies with all annual compliance requirements. Therefore, it is better to incorporate as a section 8 corporation as opposed to a society or trust.